Customs brokers are sometimes called other names such as Customs House agents, Declaring agents, Clearing agents, Declarants or Customs agents. They primarily provide importers and exporters with a service to prepare clearance documents and make submissions of entries to Customs authorities.
Sometimes, Customs brokers also arrange for hauling cargo past checkpoints and making last mile deliveries. While in other cases, main freight forwarders have their own teams managing clearance procedures. This might lead to some confusion in freight forwarder vs. Customs brokerage selection factors, since in many cases the freight forwarder will also be the Customs broker. This article will focus on Customs broker selection considerations, with little regard to the transportation aspect of any brokerage activity.
It is highly recommended that vendors should be scored separately on their transportation capabilities and brokerage abilities during the selection process in order to reach a good procurement decision.
Customs Broker Selection Considerations:
If you intend to hire a Customs broker, here are some important factors to consider aside from costs:
- General expertise
- Industry experience
- Licensing qualifications
- Relationship with Customs
- Company size
- AEO qualifications
- Commitment to compliance
- Ethics and Compliance track record
Let’s look at these factors in greater detail.
1. General Expertise
Customs declarations are highly sensitive documents and can result in smooth clearance if done correctly or seized cargo if done carelessly. It can be said that among all the documents and/or submissions prepared by Customs brokers is the import or export declaration. These declarations can also be called Entry lodgements or Import/Export filings. After making the entries, if the cross-border cargo movement is approved by Customs, a cargo clearance permit is issued by the authority. This document, in either hardcopy or softcopy format (depending on the country’s regulations) allows the trader to move cargo through clearance gates at checkpoints. Hence the brokerage must be able to show proof of having strong competency in filing out entries. If the data is available for analysis, the entry rejection rate would be a loose indicator of this competency.
Aside from the import declaration, the brokerage should be able to:
- Present a documented working process that clearly explains the Customs clearance formality procedures in country. The presentation should include mention of average timelines and documentary requirements at every stage of the clearance process.
- Explain how they execute Customs remedies, have processes for common activities like putting up security bonds, clearing cargo under protest, issuing objection letters and preparing ruling submissions.
- Share some case studies of how they managed interactions and formal engagements with Customs on behalf of or in partnership with importers/exporters in the past.
- Display suitable expertise in tariff classification.
- Display awareness and understanding of how Incoterms affect required price to be declared to Customs
- Show a commitment towards driving clearance lead time improvements and continuous improvement.
2. Industry Experience.
For example, if you are dealing with agricultural products, you should check if the Customs broker has any experience managing other clients in the same industry. If they already handle a competitor’s business and have been doing so for years, this is usually a positive indictor of their capability to serve your specific business needs.
Each industry has its own Customs clearance and compliance “quirks” to take note of like multiple government agency licensing regulations, mandatory import/export documentation and inspection procedures. Hence, even if the Customs broker has been around in a country or port for a long time, if you are their first industry specific customer it will be a risk to your business, though you may be paying a premium for experienced broker services.
Hence, even if the Customs broker has been around in a country or port for a long time, if you are their first industry specific customer it will be a risk to your business, though you may be paying a premium for experienced broker services.
3. Licensing Qualifications
Many countries have established licensing regimes to qualify Customs brokers before they are legally allowed to make declarations on behalf of traders. However, licensing regimes can differ in many ways.
1. Some licensing regimes may require just 1 person in the entire brokerage to be formally licensed or may require every single declarant to be licensed
2. Qualification exams may be robust and difficult to pass or extremely lax, where just about anybody could walk away with a license
3. Certifications may or may not require renewal application
Examples of Customs broker licensing regimes:
- United States of America: In order to qualify as a licensed US Customs Broker, the individual must pass an exam and be of good moral character.
- European Union: Does not have a licensing system. The trader is responsible for timely and correct declarations being made to Customs.
- Indonesia: Requires Customs brokerages to have a specific minimum number of employees who have passed the Customs broker license exam.
- Singapore: Declarants must pass a competency test. Traders are liable for timely and correct declarations being made to Customs.
- Australia: Declarants must pass a competency test. Traders are liable for timely and correct declarations being made to Customs.
- South Korea: Individuals must pass 2 exams to be licensed as a Customs broker.
Understanding the licensing regime in a country is important to understand the assessed competency of the individuals making actual declarations to Customs on your behalf.
A general rule of thumb is that if everyone on the declaration drafting team has passed a competency or licensing examination by the appropriate local authority, then at least in theory your business is being handled by qualified persons. However, if not everyone in the team is licensed, you should check that there are processes in place to ensure that your declaration gets vetted by a licenced individual before submission to Customs.
However, if not everyone in the team is licensed, you should check that there are processes in place to ensure that your declaration gets vetted by a licenced individual before submission to Customs.
4. Relationship with Customs/Customs Standings
Is your declarant’s relationship with Customs always adversarial and confrontational? Or does the brokerage make an attempt to ensure that relationships with authorities are respectful and cordial? Is the broker already on a red flag list? If Customs has a bone to pick (legitimately or otherwise) with the Customs brokerage that you are intending to use, this could mean more red lane channelling for your shipments.
One way to fish out this information during a vendor assessment is to ask for statistics on red, yellow and green lane shipments across all their clients. If the broker has an abnormally high number of red and yellow lane shipments that they are unable to clearly explain, it could mean that the broker is already on a red flag list or has a poor relationship with Customs, thereby attracting the wrong kind of attention from the authorities.
5. Company Size & Facilities
A Customs brokerage with a small administrative office and lean team will not have a strong business continuity plan, though they will probably have lower over head costs and hence can offer cheaper service. But without resources to fall back on, they will not be able to cope with riots, strikes, road congestions, port congestions, port accidents or natural disasters. These issues are real causes of concern in many countries and traders should be highly aware of brokerage constraints in dealing with them if they do arise.
If the brokerage is also involved with trucking cargo out to delivery points, you must make an assessment if they are able to deal with ad hoc storage requirements for your type of cargo. For example, if cold chain storage or freezer box transportation is required – is the vendor able to provide overnight yard space with sufficient generators on short notice?
6. Authorised Economic Partner Status
If the country has established an authorised economic operator program, then it would be of interest to the trader to use a Customs broker qualified under it even if the AEO framework in country does not bring with it tangible benefits. Signing on for such a program is a testimony of the brokerage’s commitment to best practices and using such a brokerage puts the trader in positive light with Customs authorities. By using an AEO broker, the company also sends the message to Customs that they are willing to invest in compliance.
By using an AEO broker, the company also sends the message to Customs that they are willing to invest in compliance.
7. Commitment to Compliance
A good Customs broker will go beyond simply executing administrative filing of entries to Customs. When selecting a vendor, the trader should check that the brokerage has a dedicated Customs compliance function or headcount that actively gets involved in operations. At the very least, there should be some form of operational or transactional audits. This could minimally be in the form of conducting random checks on the declarations performed by their operations team to check for compliant practices relating to the common risk areas like tariff classification, valuation and licensing.
8. Ethics and Compliance track record
The broker’s commitment to ethics and compliance is important for long term sustainability of your business in country. It is sometimes said that facilitation payments in countries are “part and parcel” of doing business in that country. This may be true to some extent in many developing or third world countries, but you can never predict when the authority will decide to pick a trader as a showcase example for an anti-corruption drive that is transient or temporary. Getting caught up in such a mess is undesirable and often comes with hefty legal fees and will require a ballooning public relations and marketing budget to overcome. It is best to not get involved with any clearing agents that blatantly recommend offering facilitation fees to clear cargo smoothly.
It is best to not get involved with any clearing agents that blatantly recommend offering facilitation fees to clear cargo smoothly.
Companies may have other important considerations for broker selection, hence this activity should never be an activity done in silo. For example, if the company has a major continuous improvement project planned requiring a switch to Electronic Data Interchanges (EDI), one selection criteria would be for the broker to have the infrastructure available or the commitment level required to support such a project. Another example would be if your company plans to ramp up import/export volumes in the short term, the brokerage must have the ability to cope with the increase workload when it comes.